intro to finance chapter 1

what is the organizational chart?

BOD Chairman of board and chief executive officer president and chief operations officer VPs of marketing, finance, production treasurer and controller

are shareholders the only stakeholder in a firm?

NO

do partnerships pay dividends?

NO

scandal of Sarbanes-Oxley included

Tyco Enron WorldCom

a sole proprietorship is

a business owned by one person simplest and least regulated form of organization

a corporation is

a legal "person" separate and distinct from its owners and can borrow money and own property, can be sued, and can enter into contracts and can own stock in another corporation

working capital consists of

accounts receivable current (short-term) assets accounts payable

how is a sole proprietorship taxed?

all business income is taxed as personal income

in a partnership

all the partners share in gains or losses and all have unlimited liability for all partnership debts which is described in partnership agreement

in a limited partnership a limited partner is limited to

amount of cash put into it

treasury consists of

cash manager credit manager capital expenditures financial planning

controller is responsible for

corporate tax reporting

controller's office handles

cost and financial accounting, tax payments management information systems

cash flow goes back into the financial market by

dividends and debt payments

corporations can

enter into contracts acquire and exchange property be sued and sue

working capital managetment refers to

firm's short-term assets such as inventory and short-term liabilities, such as money owed to suppliers

capital budgeting

identifying value of the cash flow generated by an asset exceeds the cost of that asset

a good financial decision will

increase the value of the firm's existing stock increase market value of shareholder's equity

Sarbanes-Oxley Act in 2002

known as the Sarbox, intended to protect investors from corporate abuse. prohibits personal loans from a company to its officers and annual reports

Sarbanes-Oxley

list any deficiencies in internal controls accept responsibility for material errors in the annual report confirm the validity of the annual financial report

what are the 3 questions you should be able to answer?

long term investments long term financing management everyday

capital budgeting associated with

long-term assets

firm's capital structure consists of

long-term debt equity

since ________ and ownership are separated, a corporation's life is unlimited

management

in a shareholder-manager relationship, who is the agent?

managers as shareholders are the principal

capital structure is

mixture of debt and equity

limited partnerships include

one or more general partner who runs the business with unlimited liability and more limited partners who will not actively participate in the business

advantages of corporation include

ownership can be readily transferred as shares of stock and life of corporation is therefore not limited

important things when considering a partnership

personal liability for firm debts taxation of partnership income fund raising limitations

agency relationship is

relationship between stockholders and management whenever the principal hires another agent to represent his or her interests

shareholders can also be called

residual owners

owners of corporation are called

shareholders

a stakeholder is

someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

large corporations usually usually separated into

stockholders and managers

financial goals

survive avoid financial distress and bankruptcy beat the competition maximize sales or market share minimize costs maximize profits maintain steady earnings growth

controller consists of

tax manager cost accounting manager financial accounting manager data processing manager

stockholders control the corporation because?

they elect the directors

financial manager is in charge of what?

those three questions. usually vice president of finance or CFO

treasurer's office responsible for

three general questions

the main goal of financial management is

to maximize shareholder wealth

goal of financial management is

to maximize the current value per share of the existing stock